Hedge funds are selling off stocks at a rapid pace, with professionals making bearish wagers against equities amidst a recent market pullback. According to data from Goldman Sachs’ prime brokerage, hedge funds sold global stocks on a net basis for the second consecutive week, primarily through short sales. This marked the largest selling week for hedge funds since mid-January. Bank of America’s client data also showed a similar trend, with hedge fund clients selling off stocks for the fifth week in a row across companies of all sizes.
The market has been retreating as investors reassess the Federal Reserve’s stance on cutting interest rates. The Dow Jones Industrial Average fell 2.3% last week, the worst weekly performance since March 2023, while the S&P 500 declined nearly 1%, the largest weekly loss since early January. Despite this, the equity benchmark remains only 1.7% below its record high.
David Bahnsen, chief investment officer at Bahnsen Group, commented on the market’s current situation, stating that valuations are stretched and any negative economic data or geopolitical issues could lead to significant sell-offs. Consumer discretionary stocks were among the worst-performing and most sold sectors last week, according to Goldman Sachs. Hedge fund managers reduced long positions in this sector daily and shorted retail-focused exchange-traded funds, resulting in a 5.5% drop in the SPDR S&P Retail ETF (XRT) for the week.
One of the main factors driving the recent pullback is a change in interest rate expectations. The market has adjusted its outlook for rate cuts this year, with the CME Group’s FedWatch gauge showing a shift from as many as seven cuts expected for 2024 at the beginning of the year to now predicting between two and three reductions. BlackRock Investment Institute’s head, Jean Boivin, believes that while rate cuts may not begin in June as previously expected, they are likely to occur as inflation decreases.
Hedge funds are currently selling off stocks at a rapid pace, with data showing that they are increasing their bearish wagers against equities amid the recent market pullback. This trend is being driven mainly by short sales, marking the largest selling week for hedge funds since January. Bank of America’s client data also shows a similar trend, with hedge fund clients selling stocks for the fifth consecutive week across companies of all sizes. This retreat in the market comes as investors reevaluate the Federal Reserve’s plans for interest rate cuts. The Dow Jones Industrial Average fell 2.3% last week, its worst performance since 2023, while the S&P 500 declined nearly 1%. Consumer discretionary stocks were among the worst performers and most sold U.S. sectors, with hedge fund managers reducing long positions and shorting retail-focused ETFs. One of the key factors contributing to the recent pullback is a shift in interest rate expectations, with the market revising its outlook for rate cuts this year. While there is uncertainty about when the Fed will start cutting rates, many expect rate cuts to come as inflation falls. Overall, the market remains volatile with valuations stretched, prompting caution among investors.
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